Accounting for troubled debt restructuring Under the discounted cash flow method, the institution calculates impairment as the decline in the present value of future cash flows resulting from the modification, discounted at the original loan’s contractual interest rate.

Which two conditions must be met in order for a debt modification to be accounted for as a troubled debt restructuring?

The ASU provides additional guidance to help creditors determine if the two TDR criteria have been met: (1) whether a concession has been granted to a borrower and (2) whether a borrower is experiencing financial difficulties.

When there is a modification of terms in a troubled debt restructure When is a gain recognized by the debtor and for how much?

If the debt is continued with a modification of terms, a gain is recognized by the debtor if the future cash payments on the debt are less than the carrying value of the debt. For troubled debt restructures, carrying value is defined as the principal amount ($800,000) plus accrued interest ($80,000), or $880,000.

Does a TDR have to be non accrual?

To be considered in compliance with its modified terms for call report purposes, a loan that is a TDR must be in accrual status and must be current or less than 30 days past due under the modified repayment terms.

What makes a debt restructuring a troubled debt?

According to U.S. generally accepted accounting principles (GAAP), a restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.

When is a debtor is experiencing financial difficulties?

A debtor is experiencing financial difficulties when one of the following conditions is present: It is in default on any of its debt; It has securities that have been delisted; It projects that it cannot service its debt; or

What is the extinguishment model for troubled debt restructuring?

The extinguishment model for troubled debt restructurings and other extinguishments is outlined in ASC Subtopic 470-50, Debt Modifications and Extinguishments, and ASC Subtopic 470-60, Troubled Debt Restructurings by Debtors.

What kind of accounting is required for a restructuring?

The accounting for these restructurings varies, depending upon the nature of the transaction, as noted below: Full settlement with assets or equity.